Economist: China’s Mobile Internet

WJY: No doubt WeChat is many times better that WhatsApp, so is Weibo than Twitter and Facebook combined, in terms of the many very useful features they have. However, those advantages could easily be defeated by one shared defect: the Chinese government’s paranoid tight control of the contents transported through WeChat and Weibo.

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China’s mobile internet

WeChat’s world

China’s WeChat shows the way to social media’s future

YU HUI, a boisterous four-year-old living in Shanghai, is what marketing people call a digital native. Over a year ago, she started communicating with her parents using WeChat, a Chinese mobile-messaging service. She is too young to carry around a mobile phone. Instead she uses a Mon Mon, an internet-connected device that links through the cloud to the WeChat app. The cuddly critter’s rotund belly disguises a microphone, which Yu Hui uses to send rambling updates and songs to her parents; it lights up when she gets an incoming message back.

Like most professionals on the mainland, her mother uses WeChat rather than e-mail to conduct much of her business. The app offers everything from free video calls and instant group chats to news updates and easy sharing of large multimedia files. It has a business-oriented chat service akin to America’s Slack. Yu Hui’s mother also uses her smartphone camera to scan the WeChat QR (quick response) codes of people she meets far more often these days than she exchanges business cards. Yu Hui’s father uses the app to shop online, to pay for goods at physical stores, settle utility bills and split dinner tabs with friends, just with a few taps. He can easily book and pay for taxis, dumpling deliveries, theatre tickets, hospital appointments and foreign holidays, all without ever leaving the WeChat universe.

As one American venture capitalist puts it, WeChat is there “at every point of your daily contact with the world, from morning until night”. It is this status as a hub for all internet activity, and as a platform through which users find their way to other services, that inspires Silicon Valley firms, including Facebook, to monitor WeChat closely. They are right to cast an envious eye. People who divide their time between China and the West complain that leaving WeChat behind is akin to stepping back in time.

Among all its services, it is perhaps its promise of a cashless economy, a recurring dream of the internet age, that impresses onlookers the most. Thanks to WeChat, Chinese consumers can navigate their day without once spending banknotes or pulling out plastic. It is the best example yet of how China is shaping the future of the mobile internet for consumers everywhere.

That is only fitting, for China makes and puts to good use more smartphones than any other country. More Chinese reach the internet via their mobiles than do so in America, Brazil and Indonesia combined. Many leapt from the pre-web era straight to the mobile internet, skipping the personal computer altogether. About half of all sales over the internet in China take place via mobile phones, against roughly a third of total sales in America. In other words, the conditions were all there for WeChat to take wing: new technologies, business models built around mobile phones, and above all, customers eager to experiment.

The service, which is known on the mainland as Weixin, began five years ago as an innovation from Tencent, a Chinese online-gaming and social-media firm. By now over 700m people use it, and it is one of the world’s most popular messaging apps (see chart). More than a third of all the time spent by mainlanders on the mobile internet is spent on WeChat. A typical user returns to it ten times a day or more.

WeChat has worked hard to make sure that its product is enjoyable to use. Shaking the phone has proven a popular way to make new friends who are also users. Waving it at a television allows the app to recognise the current programme and viewers to interact. A successful stunt during last year’s celebration of Chinese New Year’s Eve saw CCTV, the official state broadcaster, offer millions of dollars in cash rewards to WeChat users who shook their phones on cue. Punters did so 11 billion times during the show, with 810m shakes a minute recorded at one point.

Most importantly, over half of WeChat users have been persuaded to link their bank cards to the app. That is a notable achievement given that China’s is a distrustful society and the internet is a free-for-all of cybercrime, malware and scams. Yet using its trusted brand, and putting to work robust identity and password authentication, Tencent was able to win over the public. In contrast, Western products such as Snapchat and WhatsApp have yet to persuade consumers to entrust them with their financial details. Japan’s Line (which recently floated shares on the New York and Tokyo stock exchanges) and South Korea’s KakaoTalk (in which Tencent is a big investor) have done better, but they cannot match the Chinese platform.

One app to rule them all

How did Tencent take WeChat so far ahead of its rivals? The answer lies partly in the peculiarities of the local market. Unlike most Westerners, many Chinese possessed multiple mobile devices, and they quickly took to an app that offered them an easy way to integrate them all into a single digital identity. In America messaging apps had a potent competitor in the form of basic mobile-phone plans, which bundled in SMS messaging. But text messages were costly in China, so consumers eagerly adopted the free messaging app. And e-mail never took off on the mainland the way it has around the world, mainly because the internet came late; that left an opening for messaging apps.

But the bigger explanation for WeChat’s rise is Tencent’s ability to innovate. Many Chinese grew up using QQ, a PC-based messaging platform offered by Tencent that still has over 800m registered users. QQ was a copy of ICQ, a pioneering Israeli messaging service. But then the Chinese imitator learned to think for itself. Spotting the coming rise of the mobile internet, Tencent challenged several internal teams to design and develop a smartphone-only messaging app. The QQ insiders came up with something along the lines of their existing product for the PC, but another team of outsiders (from a just-acquired firm) came up with Weixin. When Tencent launched the new app, it made it easy for QQ’s users to transfer their contacts over to the new app.

Another stroke of brilliance came two years ago when the service launched a “red packet” campaign in which WeChat users were able to send digital money to friends and family to celebrate Chinese New Year rather than sending cash in a red envelope, as is customary. It was clever of the firm to turn dutiful gift-giving into an exciting game, notes Connie Chan of Andreessen Horowitz, a VC firm. It also encouraged users to bind together into groups to send money, often in randomised amounts (if you send 3,000 yuan to 30 friends, they may not get 100 yuan each; WeChat decides how much). That in turn led to explosive growth in group chats. This year, over 400m users (both as individuals and in groups) sent 32 billion packets of digital cash during the celebration.

The enthusiasm with which WeChat users have adopted the platform makes them valuable to Tencent in ways that rivals can only dream of. After years of patient investment, its parent now earns a large and rising profit from WeChat. While other free messaging apps struggle to bring in much money, Duncan Clark of BDA, a technology consultancy in Beijing, estimates that WeChat earned about $1.8 billion in revenues last year. By the reckoning of HSBC, a bank, according to current valuations for tech firms, WeChat could be worth over $80 billion already.

Over half of its revenues come from online games, where Tencent, the biggest gaming firm, is extremely strong. E-commerce is another driver of the business model. The firm earns fees when consumers shop at one of the more than 10m merchants (including some celebrities) that have official accounts on the app. Once users attach their bank cards to WeChat’s wallet, they typically go on shopping sprees involving far more transactions per month than, for instance, Americans make on plastic. Three years ago, very few people bought things using WeChat but now roughly a third of its users are making regular e-commerce purchases directly though the app. A virtuous circle is operating: as more merchants and brands set up official accounts, it becomes a buzzier and more appealing bazaar.

Users’ dependence on the portal means a treasure-trove of insights into their preferences and peccadilloes. That, in turn, makes WeChat much more valuable to advertisers keen to target consumers as precisely as possible. There are few firms better placed to take advantage of the rise of social mobile advertising than WeChat, reckons Goldman Sachs, an investment bank. When BMW, a German carmaker, launched the first-ever ad to appear on the WeChat Moments page (which is akin to a Facebook feed) of selected users, there followed nothing like pique at the commercial intrusion, but rather an uproar from people demanding to know why they had not received the ad. Even though Tencent has deliberately trodden carefully in introducing targeted ads on users’ Moments pages, its official corporate accounts enjoy billions of impressions each day.

For Western firms, the most telling lesson from WeChat’s success is that consumers and advertisers will handsomely reward companies that solve the myriad problems that bedevil the mobile internet. The smartphone is a marvellous invention, but it can be frustrating. In much of the world, there are too many annoying notifications and updates and the proliferation of apps is baffling. WeChat provides an answer to these problems.

Better-known rivals in the West regard WeChat’s rise with more than a tinge of jealousy. One executive, David Marcus, who runs Facebook Messenger, a popular messaging app run by the social network, is willing to talk about it openly. He calls WeChat, simply, “inspiring”. His plan, to transform Messenger into a platform where people can communicate with businesses and buy things, sounds familiar.

Even enthusiasts acknowledge that the mobile ecosystem is different in the West and that WeChat’s reach and primacy in the eyes of consumers will not be easily replicated. It took off in China well before the app ecosystem had taken hold, as it has now in America and Europe. Western consumers are accustomed to using many different apps to access the internet, not just one. It would require a lot of nudging to encourage use of a single, central hub.

Nor is there much chance that Facebook could make a significant dent in WeChat’s dominance in China. The Silicon Valley darling enjoys incumbency and the network effect in many of its markets. That has sabotaged WeChat’s own efforts to expand abroad (despite splashy ad campaigns featuring Lionel Messi, a footballer). But the same rule applies if Facebook enters China, which could happen this year or next. “We have the huge advantage of incumbency and local knowledge,” says an executive at Tencent. “Weixin is quite simply more of a super-app than Facebook.”

Indeed, WeChat has already proved itself in the teeth of competition. Many Chinese champions have succeeded only because the government has hobbled domestic rivals and blocked foreign entrants. Here, too, Tencent breaks the mould. It has withstood numerous attempts by Alibaba, a formidable local rival, to knock it and its creations off their perch. And it is Facebook’s WhatsApp that is WeChat’s most obvious rival. Unlike Facebook itself, and Twitter, both of which are blocked on the mainland, WhatsApp is free to operate. WeChat has flourished for simple, commercial reasons: it solves problems for its users, and it delights them with new and unexpected offerings. That will change the mobile internet for everyone—those outside China included, as Western firms do their all to emulate its success.